These are not times of extreme distress, despite what you might be reading. An interest rate pop of 200 basis points does not mean we’re having an economic meltdown, a real estate crisis, or anything like that. Maybe that’s right around the corner but it’s not here today.
Instead, today is when to push sellers for price reductions and to hunt harder for lower rate loans. Put your offers in, let someone else over-pay or wait for the seller to come down to your price. It seems like valuations should be coming down in reaction to the hit that higher interest rates have on investor returns. But we all know that takes time. Owners hang onto their properties because the demand for rental units is still strong.
There will be more sellers who have to sell, though. It could be that their adjustable mortgage just adjusted and it’s killing them, or they foresee a much bigger crisis looming. Those owners are out there so keep looking.
Today is also a time to consider loan types you might not have considered before, such as recourse loans. If you are buying right, regardless of whether you’re syndicating or not, a recourse loan from a bank or anyone other than Freddie or Fannie should not be a big risk. Keep the term long and the prepay penalty low. The Fed knows how to curtail inflation and that will be solved soon, then rates will fall again. When, who knows, but when you have a healthy duration to your loan term, you’ll have an opportunity to refi and start making some real money!
Renter demand shows no signs of abating. Cap rates might increase a little but overall conditions remain solid. How often have you said “I wish I bought back then”? Then is now, it’s still a good time to buy.
Thoroughly enjoyed my recent podcast discussion with Aileen Prak at Bonavest Capital, check it out!
Click here to listen.